Jump to content
House Price Crash Forum

Recommended Posts

A possible scenario coming soon to a bank near you......

When confidence in the banking system fails it leads to a run on the banks. Northern Rock saw a run by small depositors, Bear Sterns experienced a run by institutional investors, but the cause was the same - a loss of confidence in the banks' ability to repay.

Laying aside the hyperinflation/deflation argument for the moment, how does one prepare for the short term?

The potential for rapid deterioration in a bank's balance sheet has been demonstrated by Bear Sterns. It didn't take much more than a rumour flying around the wires for institutional investors to lose confidence and pile out en masse. If such loss of confidence were to spread to the major clearing banks, we could see concerted bank-runs which could only be halted by an enforced and extended bank holiday while the powers that be tried to cobble together a solution. I think it is highly likely that ALL banks may have to close for up to two weeks, not just for a day or two, in an attempt to prevent the dreaded domino effect. If bank runs occurred in the US they would quickly spread throughout the world so I don't believe any country is safe.

Therefore, as an immediate hedge against such an event, it would be wise to hold sufficient cash - pound notes, not financial instruments - to tide oneself over for at least two weeks - and in small denomination notes, too, because there would be a shortage of small change if banks were to close for any length of time. Those of an entrepreneurial turn of mind may see an opportunity here to hold more cash than required to meet personal needs and take the opportunity to buy gold jewellery, say, from distressed sellers who, unable to access cash to buy necessities, might be pleased to offload gold at a fraction of its value in return for cash in hand. Such transactions could also provide a useful hedge against the hyperinflation that would likely follow a global CBs led solution to the crisis.

This scenario assumes that debit and credit cards would be frozen during the period of the bank holiday. I cannot see that it could be otherwise - a run on a bank causes immediate insolvency and all trade has to cease - even if only for the time it takes to put a rescue package in place. The threat of a general run on ALL banks would make all banks potentially insolvent overnight, therefore the only way to contain a multiple bank crisis would be to freeze all transactions until such time as confidence could be restored.

What does anyone else think? Too doomsdayish or what?

Share this post


Link to post
Share on other sites
What does anyone else think? Too doomsdayish or what?

Quite frankly Methinks, anything seems possible at the moment... the powers that be are all at sea without charts and a compass. May as well grab a couple of hundred out in cash today just in case. Ah, but would such action then bring your doomsday scenario to fruition, a self fulfilling prophecy so to speak?

Share this post


Link to post
Share on other sites
Quite frankly Methinks, anything seems possible at the moment... the powers that be are all at sea without charts and a compass. May as well grab a couple of hundred out in cash today just in case. Ah, but would such action then bring your doomsday scenario to fruition, a self fulfilling prophecy so to speak?

I've been trying to work out whether the general ignorance re banking will make multiple bank runs more or less likely. It didn't prevent a run on Northern Rock so it could mean that panic will spread sooner rather than later especially with mass, instant communication media accessible to all. But I think that at even the first hint of mass panic, an extended bank holiday will be declared - hence my imagined scenario.

Share this post


Link to post
Share on other sites
I've been trying to work out whether the general ignorance re banking will make multiple bank runs more or less likely. It didn't prevent a run on Northern Rock so it could mean that panic will spread sooner rather than later especially with mass, instant communication media accessible to all. But I think that at even the first hint of mass panic, an extended bank holiday will be declared - hence my imagined scenario.

Well there's a long weekend (in the UK) coming up next week for Easter.... maybe it'll just carry on indefinitely after BHM? I must admit to getting rather scared now.... :(

Share this post


Link to post
Share on other sites
Well there's a long weekend (in the UK) coming up next week for Easter.... maybe it'll just carry on indefinitely after BHM? I must admit to getting rather scared now.... :(

The problem is, a bank run cannot be averted before it occurs without risking setting off the very run that one is attempting to avert - witness Darling's don't panic signals that set-off the NR run. The depositor guarantees that were put in place could help - but were they government guarantees or guaranteed by a bank deposit guarantee fund financed by levies on the banks? Haven't heard much more about the scheme since it was announced by Darling.

Share this post


Link to post
Share on other sites

Im alright, Ive got a GOLD card.

In the event of an emergency, ill just cut it up and use bits of it to pay for me daily bread.

Ive applied for a platinum one too

Share this post


Link to post
Share on other sites
A two week bank holiday is absolutely fine by me as long as I still get paid. :lol:

I know you are saying this tongue in cheek, but it did make me wonder how many people are aware of the origin of bank holidays? I'd like to bet that most people under a certain age just see them as additional holidays without understanding their origin.

Share this post


Link to post
Share on other sites
I know you are saying this tongue in cheek, but it did make me wonder how many people are aware of the origin of bank holidays? I'd like to bet that most people under a certain age just see them as additional holidays without understanding their origin.

Please enlighten away, I confess to not knowing how they arose.

Share this post


Link to post
Share on other sites
It didn't take much more than a rumour flying around the wires for institutional investors to lose confidence and pile out en masse. If such loss of confidence were to spread to the major clearing banks, we could see concerted bank-runs which could only be halted by an enforced and extended bank holiday while the powers that be tried to cobble together a solution. I think it is highly likely that ALL banks may have to close for up to two weeks, not just for a day or two, in an attempt to prevent the dreaded domino effect. If bank runs occurred in the US they would quickly spread throughout the world so I don't believe any country is safe.

Therefore, as an immediate hedge against such an event, it would be wise to hold sufficient cash - pound notes, not financial instruments - to tide oneself over for at least two weeks - and in small denomination notes, too, because there would be a shortage of small change if banks were to close for any length of time. Those of an entrepreneurial turn of mind may see an opportunity here to hold more cash than required to meet personal needs and take the opportunity to buy gold jewellery, say, from distressed sellers who, unable to access cash to buy necessities, might be pleased to offload gold at a fraction of its value in return for cash in hand. Such transactions could also provide a useful hedge against the hyperinflation that would likely follow a global CBs led solution to the crisis.

This scenario assumes that debit and credit cards would be frozen during the period of the bank holiday. I cannot see that it could be otherwise - a run on a bank causes immediate insolvency and all trade has to cease - even if only for the time it takes to put a rescue package in place.

I'm fishing around in my memory here, but wasn't there a point in Ireland when there was ??a bank strike?? so no-one could bank cheques for ??6 months?? (I said I was fishing around in my memory - I've a vague idea this would have been 1980ish)

Anyway, it was a good object lesson in the adage "money is what money does" - when they re-opened a flood of cheques came in, some of which had been endorsed over up to 20 or so times! Reverting to their origins as negotiable instruments. As long as you trusted the bearer, a cheque for £100 was treated as worth £100 (or near offer!)

People do find ways round these crises.

Share this post


Link to post
Share on other sites
Please enlighten away, I confess to not knowing how they arose.

In the United States, banks are generally closed on all federal holidays, but the term bank holiday refers specifically to emergency bank closures mandated by executive order or act of Congress to remedy financial crises, for example the Emergency Banking Act of 1933.

From Wikkkkkipeedja

Share this post


Link to post
Share on other sites
I know you are saying this tongue in cheek, but it did make me wonder how many people are aware of the origin of bank holidays? I'd like to bet that most people under a certain age just see them as additional holidays without understanding their origin.

Something to do with Mods and Rockers fighting at Brighton

Share this post


Link to post
Share on other sites
Quite frankly Methinks, anything seems possible at the moment... the powers that be are all at sea without charts and a compass. May as well grab a couple of hundred out in cash today just in case. Ah, but would such action then bring your doomsday scenario to fruition, a self fulfilling prophecy so to speak?

Actually, I do keep a bit more cash than before. Not because I see a run on cash machines as presaging a crash, but because of the inconvenience of being without for two or three days - if the cash demand were to increase and lead to local shortages of notes.

I wonder if there was a cash run, would banks refuse to lend on agreed overdrafts to limit cash take? Only allow people who are in credit to withdraw?

Optobear

Share this post


Link to post
Share on other sites
Actually, I do keep a bit more cash than before. Not because I see a run on cash machines as presaging a crash, but because of the inconvenience of being without for two or three days - if the cash demand were to increase and lead to local shortages of notes.

I wonder if there was a cash run, would banks refuse to lend on agreed overdrafts to limit cash take? Only allow people who are in credit to withdraw?

Optobear

In the US in the 1930s when banks got into trouble, the early response was to limit withdrawals and only when that didn't work were bank holidays declared. The problem with limiting withdrawals is that it signals in neon lights that a bank is in trouble, which magnifies the liklihood of a bank run. Also, it would be difficult to normalise transactions following a period of limiting withdrawals without risking the very thing they were trying to avoid - a bank run.

Share this post


Link to post
Share on other sites
Very prescient.

Also mentioned in the Times today 15.03.08.

“I would not be surprised to see an emergency bank holiday announced. That hasn’t happened since Roosevelt.”

Article re who is most exposed to Barren Asset and therefore the most at risk.

Click, click, click - that's the sound of dominos.

http://business.timesonline.co.uk/tol/busi...icle3556815.ece

Interesting....

I worked this lot out for myself and I have no financial background, just an interest in finance and economics, especially with regard to herd behaviour.

If those who REALLY know about finance are floating the idea of an emergency bank holiday, then it's time to take action.

Share this post


Link to post
Share on other sites
If those who REALLY know about finance are floating the idea of an emergency bank holiday, then it's time to take action.

Are you suggesting that we do a bank job ?

Share this post


Link to post
Share on other sites
Interesting....

I worked this lot out for myself and I have no financial background, just an interest in finance and economics, especially with regard to herd behaviour.

If those who REALLY know about finance are floating the idea of an emergency bank holiday, then it's time to take action.

Your opinion is as good as theirs: you are unblinded by the herd the experts are all subject to, and as an outsider, you can see the wood for the trees.

Share this post


Link to post
Share on other sites
Nowt so drastic! Just have a few thousand in low denomination notes hidden under the mattress, that's all.

£1 notes?

Share this post


Link to post
Share on other sites
£1 notes?

In 1970 or thereabouts a packet of 20 fags cost 2/11 - approx 15p in new money. One could have bought 6 packs of fags for a £1.00 in other words. Since a packet of fags now costs over a fiver, and assuming a similar inflationary increase across the board, I don't think there's much need for holding any low denomination coins - five pound notes should do the job.

Share this post


Link to post
Share on other sites
In 1970 or thereabouts a packet of 20 fags cost 2/11 - approx 15p in new money. One could have bought 6 packs of fags for a £1.00 in other words. Since a packet of fags now costs over a fiver, and assuming a similar inflationary increase across the board, I don't think there's much need for holding any low denomination coins - five pound notes should do the job.

is this representative of the inflation for houses over the period ?

Share this post


Link to post
Share on other sites
is this representative of the inflation for houses over the period ?

I bought my first house in 1971 - a three-bed mid-terrace, separate garage, lounge and kitchen/diner in a south coast resort about 10 miles from Brighton. It cost approx £5000. Our joint income at the time was approx £3000 pa. How does that compare - too idle to do the calcs myself!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.